India Taxes Crude Palm Oil Imports to Shield Oilseed Growers

By Prabhudatta Mishra and Pratik Parija -
Jan 18, 2013

India, the world’s biggest cooking
oil consumer after China, will tax crude palm oil imports for
the first time since 2008 after a slump in prices spurred record
shipments, hurting domestic oilseed growers.

Crude palm and soybean oil imports will be taxed at 2.5
percent, while the tariff on purchases of refined cooking oils
will be maintained at 7.5 percent, the Agriculture Ministry said
in a statement yesterday. The benchmark price for calculating
the tariff will be changed for the first time since 2006 on all
cooking oils on a fortnightly basis, the government said in
another statement on its website.

The taxes may cut Indian imports, boosting palm oil
inventories in Indonesia and Malaysia, the world’s largest
producers, and pressure futures in Kuala Lumpur. Futures will
trade between 2,300 ringgit ($763) and 2,600 ringgit a metric
ton until February, keeping inventories high, Dorab Mistry,
director at Godrej International Ltd., said Nov. 30.

“Crude palm oil demand from Indian refiners are probably
going to decline and the extent may not be significant because
palm oil is still far cheaper than alternatives,” said Ben Santoso, an analyst at DBS Group Holdings Ltd. in Singapore.
“We expect prices to remain range-bound until at least May,
when demand normally picks up again.”

Futures Rebound

The contract for delivery in April rose 0.9 percent to
close at 2,400 ringgit a ton on the Malaysia Derivatives
Exchange, rebounding from a 2.1 percent loss yesterday. The
most-active contract has rallied 8.3 percent after slumping to a
three-year low of 2,217 ringgit on Dec. 13.

Stockpiles in Indonesia, the biggest supplier of palm oil
to India, may gain to 3.5 million tons in January from 3.25
million tons in December, according to a Bloomberg survey. That
may prompt the Southeast Asian nation to cut its export tax to
compete with Malaysia, which set the tariff on shipments at zero
this month to drain record reserves and the government has said
the rate will be unchanged in February. Stockpiles in Malaysia
jumped to an all-time high of 2.63 million tons in December,
according to the nation’s palm oil board.

“It’s going to be more difficult for us to reduce
stockpiles with this tax, and eventually it will be harder for
prices to recover,” Susanto, head of marketing at the
Indonesian Palm Oil Association, said in an e-mail today. “It
will definitely hit our exports, we will lose our market share
in India to Malaysia.”

Record Imports

Palm oil represents almost 80 percent of India’s cooking
oil imports. Purchases were a record 10.2 million tons in
2011-2012, according to the the Solvent Extractors’ Association
of India. The country buys palm from Indonesia and Malaysia and
soybean oil from Brazil and Argentina. The government scrapped
the tax on crude palm oil in April 2008 to rein in inflation.

“The duty difference between crude oil and refined oils
has been reduced and this will encourage large import of refined
oils, hurting refiners,” B.V. Mehta, executive director of the
extractors’ association, said by phone from Bangkok. “Capacity
utilization of the refiners will drop.”

The benchmark price to calculate tax on imports will be
aligned to prevailing global prices to “provide an even-field
to the domestic refining industry,” the government said. The
taxable value of crude palm oil imports in India has been $447 a
ton since 2006, well below international prices now, while it
was set at $580 a ton for crude soybean oil.

Revenue Collection

“The freeze has led to a significant variation between the
notified tariff values and the computed landed prices based on
international prices of the edible oils, adversely affecting the
revenue collection and also the domestic refining industry,”
the government said.

The increase in tax on crude edible oils may increase the
price paid to domestic oil palm growers by 150 rupees ($2.77)
per ton as the rate is linked to the landed cost of the oil, the
Agriculture Ministry said. The impact of higher duty will be
negligible in the local market as Malaysia and Indonesia may be
forced to lower export duty to clear stockpiles, it said.